Traditional absorption costing
is therefore no longer adequate because it just allocates overheads proportionally through arbitrarily chosen allocation bases.
A study conducted by EIDT (2006) among six furniture makers in the western part of Santa Catarina found that four of them used absorption costing
exceptionally to value their inventories.
Thus, if the enterpreneur or small business owner were to ask the accountant for the cost per unit of each type of product made, the accountant's answer would most likely be expressed in terms of absorption costing
and would include only manufacturing costs.
Costing techniques provide a case in point, with the gradual move from absorption costing
to activity-based costing and then to time-based activity costing.
Kaizen and target costing were introduced by the new Japanese owner, but standard absorption costing
had been used before and continued in an almost unchanged form.
Manufacturing companies use absorption costing
(GAAP-required inventory accounting), which allocates fixed manufacturing overhead to inventory.
The primary subject matter of this case concerns income inflation opportunities when GAAP based absorption costing
is used as compared to internally used variable costing when more inventory is produced than sold.
and marginal costing systems contrasted.
The final section covers traditional managerial accounting topics of classifying costs, job order costing, direct and absorption costing
, and standard costing.
In income statements prepared under absorption costing
and variable costing, where would you find the terms contribution margin and gross profit?
By casting budgets in terms of traditional absorption costing
and analyzing deviations from static budgeted amounts, many organizations fail to realize the full potential benefit of this process.
A unique feature of the book is the organization format for the presentation of cost allocation and absorption costing